Some companies may be left high and dry at the end of flu season, analysts say.

By Aaron Smith, CNNMoney.com staff writer

January 6, 2006: 2:49 PM EST

NEW YORK (CNNMoney.com) -
Some biotech companies working on bird flu vaccines have seen their stocks zoom in recent months but investors take note: when the flu season ends, the firms could have a hard time keeping up their stock prices.

"Part of it depends on the news cycle and whether or not the pandemic becomes more of a concern," said Ken Trbovich, analyst for RBC Capital Markets, who covers the biotech Novavax Inc. "If there is no human transmission when the flu season fades, the stock may also fade because of lack of attention paid to this issue."

The biotech is also working on a way to develop vaccines inside insect cells, instead of the traditional and time-consuming process of developing them in chicken eggs.

Bird flu is in the news again, with three recent fatalities reported in Turkey and a $3.8 billion bird flu budget approved by Congress.

Bird flu, also known as H5N1, infects birds but can also spread to humans, with a mortality rate of about 50 percent. The deaths of three teenaged sisters in Turkey brings the tally to 74 deaths, according to the World Health Organization.

Scientists recently discovered that the 1918 flu pandemic that killed at least 50 million people originated in birds and spread to humans before it mutated into a strain that was transmitted from human to human, igniting fears that another pandemic is possible.

Congress has approved billions of dollars to prepare for the possibility of a pandemic, including the development of a vaccine.

Much attention has been paid to Roche, the Swiss maker of the anti-viral Tamiflu, but demand outweighs supply.

Developing new vaccines and manufacturing them can take years. But making money off small biotechs can go a lot faster: Investors who held Novavax stock over the last three months have seen the company's stock value double.

Navdeep Jaikaria, analyst for Rodman & Renshaw, said Novavax is one of the most promising biotechs working in the bird flu arena, because the company's cell-based technology could shorten vaccine production.

Jaikaria, who has rated Novavax an "outperform" with a 12-month target price of $6, said the company has "enough meat" to ride out seasonal fluctuations in investor enthusiasm.

Novavax isn't the only biotech to ride the bird flu wave: BioCryst Pharmaceuticals (up $0.41 to $18.24, Research), an Alabama biotech that plans to have its bird flu anti-viral Peramivir ready for government stockpiles in March, has seen its stock price jump 80 percent over the last three months.

Meanwhile, the stocks of three other biotechs working on bird flu products are little changed over the last three months.

They are Crucell (up $0.53 to $27.30, Research), the Dutch biotech that leases its technology to make vaccines to Sanofi-Aventis, Philadelphia-based Hemispherx BioPharma (down $0.07 to $2.19, Research), which is working on a cell-based method of vaccine production, and Vical Inc. (up $0.07 to $4.53, Research), a San Diego biotech that is working on a DNA-based method.

Flu season typically peaks in the winter. During these months, Wall Street traders ride the subways with thousands of flu-stricken workers, and many of the traders become sick themselves. It's easy for them to imagine a flu pandemic.

So what happens to biotech stocks when flu season ends?

"Influenza will become a less topical story come March," said Scott Henry, analyst for Oppenheimer & Co. "The flu does tend to be a seasonal event."

Henry said investors should focus on biotechs that are "not only looking for a vaccine for the avian flu, but a platform to make vaccines not inside eggs."

But Henry added that "most companies that don't earn money are dependent on the news cycle," so if bird flu fails to generate headlines, it could also fail to generate investor interest.

"If you think you're going to play the hype, you should probably play the cycle, too," said Henry. "If you're a trader looking for a quick move, you have to recognize the seasonality of the flu and the news cycle. You don't want to be the last one on the block."

The analysts interviewed for this story do not own stock in the companies mentioned here, but Rodman & Renshaw has banking relations with Novavax and Vical.